Container shipping operator Seaspan Corp intends to pursue further fleet expansion through loans, cash flow and possible secondary share offerings to take advantage of the fragmented market it operates in, a senior executive said on Friday.
"There is plenty of room for someone like us to consolidate market share," Chief Financial Officer Kevin Kennedy told Reuters at Seaspan's corporate headquarters in Vancouver. "Our aim is to keep expanding the fleet and to fund some of that through debt facilities, some through cash flow and some through additional equity offerings on the New York Stock Exchange."
Seaspan said on Thursday it had exercised an option to purchase four vessels that can hold 2,500 twenty-foot equivalent (TEU) containers in addition to four already ordered from Jiangsu Yangzijiang Shipbuilding in China, at a cost of $44.7 million per vessel.
The container ship operator is exploring the charter market to see if there is sufficient demand for Seaspan to exercise an option for four additional ships, Kennedy said.
Seaspan has until September 30 to exercise that option. "We believe that there is a demand for those ships," he said. Seaspan had its initial public offering in August 2005 and currently has 16 vessels in service. With the four new ships announced on Thursday, plus 13 already on the order books prior to the announcement, Seaspan's fleet will more than double to 33 vessels by the end of 2009.
Two thirds of those ships will be on 12-year charters to China Shipping Container Lines Co Ltd. All of Seaspan's fleet is leased out on long-term contracts at lower rates than short-term contracts, but Kennedy said the company targets a reliable, long-term revenue stream for investors rather than relying on the spot market for business.
"This is the strength of our business model because it provides investors with a clear picture of future earnings," Kennedy said. He added that as Seaspan expands it will be able to reduce its costs and offer better rates to companies like China Shipping Container Lines. "This will improve our position and help us take market share," Kennedy said. The company's busiest route is from Asia, primarily China, to North America, a reflection of the increasing outsourcing of the US manufacturing base to countries like China.
There are currently around 4,000 container ships in service world-wide and another 1,000 are due to come into service over the next three years, with the majority of owners operating a single vessel or two. The expected influx of additional vessels has raised concerns among analysts that shipping rates will fall as capacity may outstrip demand.
Kennedy said that while rates fell significantly in 2005, so far this year rates have remained steady. "After 10 straight years of 10 percent year-on-year growth in the container business, demand still appears to be strong," he added. He added Seaspan would likely use any slackening global demand to increase the pace to acquire more vessels.
"If there were a hiccup in demand then some smaller players would exit the market," Kennedy said. "That would push asset prices down and that would be a good opportunity to buy." Seaspan's dividend policy consists of an annual pay-out of $1.70, and Kennedy said the company will look to increase that as earnings rise.